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Railtrack's spendthrift Zones and Regions have been reined-in by the Black Tower
After Hatfield, when the Railtrack Board belated realised that railways really are heavy engineering in public, there was a period when civil engineers had carte blanche to spend, spend, spend. First, gauge corner cracking sites had to be rerailed. Then the burgeoning condition of track TSRs, burgeoning because track maintenance and renewal stopped while GCC was sorted, had to be brought under control. And then it was a case of upping renewals and maintenance to reduce the original pre-Hatfield backlog.
Then came the enforced Administration of Railtrack plc and the subsequent separation from Railtrack Group. John Armitt then took over as Chief Executive of Railtrack plc and started trying to impose order on an organisation reminiscent of Renaissance Italy when it came to local initiative.
Not an easy task, when John Armitt and his HQ team are also having to finalise a new business plan for the sale process, while producing a new Network Management Statement and preparing a submission for an interim review. And while Railtrack plc controls the money, it is the Zones and Regions which spend it. And since Hatfield and then administration the Zone and Region Directors have eagerly filled any resulting power vacuums.
To restore control, at the start of the year John Armitt called for five year financial plans from the operating units. In addition to Armitt, Administrators Ernst & Young also have an interest in how much Railtrack planned to spend. Not least, the information was required to supplement the asset condition and other material in the data room then being set up for potential buyers.
According to Informed Sources, Adminsitrators Ernst & Young's reaction to the business plans was to analyse the likely long term costs of three approaches to maintenance and renewal :
*Patch & mend
*Reduction of temporary speed restrictions and improvement of other quality indicators to meet track access contracts.
*A fully funded infrastructure.
Over the five years of the current five year control period (CP2) the fully funded option, aka the total of the business plans, is believed to have added £6-7bn to the £16bn allowed by the Rail Regulator. In effect, the Administrators and the Railtrack board faced the immediate prospect of authorising expenditure in 2002/03 for which funding would not be available until a yet-to-be initiated Periodic Review was completed.
On top of which, the post-Hatfield expansion in renewals meant that Railtrack had overspent in the first year of CP2. The Zonal five year plans had assumed that the Periodic Review would have been processed to come into effect in time to allow this level of expenditure to continue during 2002-03.
Now authorising another £1bn a year you haven't got, and when Railtrack in administration is subsisting on Government loans (which have to be paid back), and when you don't know what the new owner's expenditure plans might be, is not something accountants do lightly. So the instruction went out to the Zones and Regions in February that renewal expenditures for the year starting 1 April 2002 should be cut back by 50%.
Cue howls of protest from the men and women at the sharp end. At the Black Tower , the view is that the Zones had ‘asked for the world' and were now interpreting a realistic settlement as a cut back.
What is a realistic settlement? Well, starting with maintenance, the current year which started on April 1 will see a 22% increase in expenditure.
Renewals are slightly up, but, as ever, this statistic is distorted by the West Coast Route Modernisation. If you exclude the WCRM renewals expenditure in 2002-03 will show a 30% year on year increase. Similarly excluding the WCRM, expenditure on enhancements has been doubled for this year.
And these increases are on already substantial numbers. In all the sturm and drang of everyday railway politics it is easy to forget that enhancements are rolling in in the real world. TPWS, of course, but also Leeds First, completion of Sunderland Direct and the biggest unsung success, Cross Country Route Modernisation.
So, a ‘50% cut-back' is not all that it seems. Even with the cut back, Railtrack will still be spending more this year than the Regulator allow for in his Periodic Review. And there are also questions over the availability of the manufacturing and manpower resources to implement some of the Zones' more ambitious expenditure programmes.
One concern in the Zones is that with the cash spread more thinly less effective use will be made of possessions, meaning a disproportionate reduction in renewal rates. Certainly, there is evidence that the previous steady reduction in the number of Temporary Speed Restrictions on the Network has plateaued-out and may even be showing a rising trend.
Certainly from the train operating company perspective any cut backs are a bad thing. One informed sources told me that the current state of the infrastructure used by his TOC was ‘dire'. He wondered whether it was good business for Railtrack so save money on renewals when the resulting increase in TSR's could increase performance penalties by tens of millions.
Quite. And he was speaking before Network Rail emerged with its quick fix to get Railtrack out of administration. And as you will have read above, the new owners think there's enough money available for the rest of CP2, but it will mean some form of centrally imposed expenditure rationing.
Fortunately, at the epicentre of the fast developing Network Rail/Railtrack vortex sits John Armitt, quiet, imperturbable, unafraid of big numbers and an undoubted class act in my book. He has just shown the Zones and Regions who is boss. Oh to be a fly on the wall when he meets Ian and Iain.